Improving Internal Complaints Mechanisms

The “Draft Market Conduct Framework”, published in December, is certainly a goldmine in terms of trying to gauge what the future holds for the industry. The information published below is extracted from it. It contains guidelines on how FSPs will need to amend their Complaints Management Systems to be proactive and integrate TCF principles in it.

A customer’s first port of call, when resolving a complaint, should be to the financial institution concerned. TCF Outcome 6 states that customers should not face unreasonable after sales barriers, including laying a complaint if deemed necessary. Other examples include changing a product, switching providers or submitting a claim. To demonstrate commitment to this TCF Outcome, it would be necessary for a financial institution to develop, implement, monitor and report on, an appropriate and effective internal process to manage customer complaints. In addition, firms are expected to use customer complaint information as an important source of management information to measure and improve their delivery of the full set of TCF Outcomes.

The regulatory framework should therefore set consistent obligations for all firms to develop and implement complaints management processes (CMPs), and set consistent standards which those processes should meet. The financial services regulatory framework regarding complaints management, like many of the current regulatory standards, is inconsistent, with different levels of responsibility placed on different types of entities.

Project action plan to improve internal complaints mechanisms

In November the FSB published a proposal for a Revised Regulatory Framework for CMPs. This proposal is the outcome of a series of consultations, going back to February 2013, with the multi-stakeholder TCF Regulatory Framework Steering Committee.

The preamble to the section on the envisaged Complaints Management Process reads:

“All regulated financial institutions will be obliged to develop, implement and maintain a complaints management process (“CMP”) that records in writing the institution’s commitment to fair and transparent complaints handling, and its systems, processes and procedures for internal resolution of complaints. The CMP and the processes it sets out must be appropriate to the particular firm’s business model and the nature and scale of its products, services and customer base…”

The main features of the framework should include the following components:

A detailed description of the CMP which makes it clear to customers and employees how the system works and how, and by whom, it is maintained and overseen.

A simplified outline of the CMP that makes it quick and easy for consumers to understand who to contact, what is required from them, what the firm will do and any waiting periods.

Standards for record keeping and reporting, to make sure complaints are captured correctly and reported correctly. This will enable the conduct regulator to exercise oversight, and to require publication of complaints data in a manner that makes it possible for the financial sector to learn from customer feedback obtained through the CMPs.

Standards whereby financial institutions have to be able to demonstrate how they are monitoring, and learning from, customer complaints, including not only those captured by their own system but also from data published by the regulator on complaints handling throughout the financial sector.

The basic principles governing the relationship between the CMPs of individual firms and ombud schemes are that:

Firms have to make information available to their clients at all stages of the service relationship about the ombud scheme (s) to which the client has recourse in the event of a dispute not being resolved internally to a customer’s satisfaction

Firms should be able to demonstrate that their CMP includes a mechanism to analyse, and learn from, ombud rulings.

The framework proposes ways in which complaints management can be embedded in the current regulatory framework for different types of institutions, until the Financial Sector Regulation Act is in place, for example through the Policyholder Protection Rules (PPRs) for insurers. Industry engagement on the proposals will inform the finalised approach.

The “Draft Market Conduct Framework” integrates a lot of information, published over a lengthy period of time, to provide a more holistic picture of envisaged changes. Experience overseas clearly show that early adopters are eventually better able to adapt to change, compared to those wait until they are forced into action.

About Paul Kruger

He is both editor and writer-in-chief of the Moonstone Monitor, the Moonstone Investment Indicators and the Moonstone Online website. After 35 years in financial services, he is as passionate about the industry as he is about sport, wine and music.